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Cannabis REIT, IIPR, is Using Deregulation to Crush the Market

IIPR is up more than 200% over the last year, here is why.


A recent report from Leafly shed light on how cannabis affects the real estate market in an area with a dispensary. The common political argument against cannabis dispensaries in an area are typically twofold: they increase the crime rate of a zip code and also drop home prices in that area. These fears are even reflected in Pew Research showing a 25% gap between support for cannabis legalization and supporting a cannabis business in your area.

This is apparent in legal states like Colorado, where 65% of towns have banned cannabis stores. In California, 75% of jurisdictions have banned cannabis stores in their area. So, using five years of official data in Colorado and Washington, Leafly found that crime rates had not relation to the location of cannabis dispensaries, teen drug use was unaffected and generally declined and property values within a half-mile radius of a cannabis dispensary saw prices increase by 6% compared to towns that banned cannabis stores.

The one cannabis real estate company to watch

As the mythology around cannabis begins to fade, the cannabis real estate market will begin to mature. This fact is not lost on investors of Innovative Industrial Properties, Inc. (IIPR), which has piled on this year up 210% over the last 52-weeks. The REIT has been able to post some of the highest gains in the industry because 25 acquisitions during the cannabis credit desert giving it 1.9 million square feet of cultivation space. Recently, the company even became the landlord for Trulieve Cannabis (TCNNF) for a recently re-developed 150,000-square-foot property. IIPR also signed a deal with DionyMed for a cannabis campus in Los Angeles.

The deal with Dionymed demonstrated the appeal of IIPR’s sale/leaseback program where IIPR buys the property from a licensed cannabis operator like Dionymed and then leases it back for a long-term agreement usually 10 or 20 years. This program allows cannabis operators to redeploy the proceeds back into the needs of the business without giving up equity. As we detailed in an article on cannabis banking regulations last week, the lack of access to typical financing has made IIPR’s programs a reasonable option for licensed operators who need capital for security system or track-and-trace software, all of which are required by legal states legislatures.

Banking woes have boosted IIPR’s business

“When they seek other options, they find that other capital sources want an equity position in return,” IIPR’s CEO Paul Smith said in an interview with New Frontier Data. “Before you know it, these growers are giving away a big chunk of their company. When they do an analysis, they discover that our program is a much better option for them.”

With a portfolio of real estate assets of $332 million, IIPR has primarily focused on cultivation centers rather than laboratories where they have been able to lock up long-term contracts with well-known cannabis operators across the country.

Many analysts and cannabis sector researchers see IIPR as being overvalued and that the company’s gains cannot continue at this pace. And this might be true, but IIPR has a business model that thrives off lack off banking regulation and the company has very little mortgage debt, so if deregulation does happen, IIPR is agile enough to still be competitive.

AT&T, T-Mobile and Verizon should be turning the volume up. Their current quiet murmur is just not enough.